What is a Pre-emptive Rights Clause?

Pre-emptive rights clauses can protect existing shareholders from the dilution of their proportionate holdings, and is a type of protection sought by founders and investors alike. The term ‘pre-emptive rights’ usually refers to a ROFO (Right of First Offer). These clauses can be found in various agreements, most commonly shareholder agreements, subscription agreements, and operating agreements.

For this week’s Founder’s Only I dug into Faheem’s podcast archives. Faheem is a member of Founder’s Only, and he and I were MBA friends over a decade ago. We both ran the campus entrepreneur society in different years and have been periodic business partners since graduation. Faheem assembled a great collection of stories from new company founders who have decided to leave 9 to 5 jobs to start a business. This collection is entitled “Radical Tribe”. I dug into this article of Kelly Newsome, a lawyer-turned Yoga instructor.

There are new reporting requirements for all corporations incorporated under the Ontario Business Corporations Act (OBCA), that went into effect in December 2016 under the Forfeited Corporate Property Act, 2015.

Who’s Who?

Directors – names are (in most jurisdictions) recorded on the public registrar, role is to protect the shareholders, accept some legal liability, vote on company major decisions. No hands on day-to-day activities.

Executive Director – same as above, but also in an executive role (e.g. President), with hands on day-to-day operational activities.

Although a memorandum of understanding can offer an alternative way to create relationships, it is important to consider how this agreement differs from formal contracts. As this post explains, poor drafting of a memorandum of understanding can cause significant legal issues.

Written by Jennifer Ashley AndayaEdited by Rajah Lehal, Ian Hume and Alina Butt

The business of corporate law relies upon the entrepreneurial spirit of its clients. So, if you have decided to pursue your dream of becoming an entrepreneur, for a lawyer (and for our beloved Clausehound.com), that’s great! But just as much as the law thrives upon entrepreneurialism, entrepreneurialism flourishes with the proper legal services—it’s a two-way street.

When you’re involved in a contractual dispute, the process for resolving the dispute should be set out in the contract itself.

If the contract is silent on the point and you can’t resolve your dispute, you will have to use the courts. This can lead to disagreement about which courts have jurisdiction, so it is important to include clauses dealing with both governing law (what law applies) and jurisdiction (which courts can decide a case) in your contract.

If you are being reclassified as an independent contractor after working as an employee, your employment agreement may be void – but not entirely.

The employment agreement can provide that certain clauses “survive” upon termination. This means is that the employee will remain bound by those specific obligations, even if the rest of the agreement has been terminated.

While most commercial leases are standard, you should still be careful about what you sign. The fine print matters, and every clause is important! For example, you may find yourself locked into a lease renewal you didn’t want, or you may discover that you have agreed to absurd hikes in monthly rent payments.

Here are 6 of the many clauses to be aware of before entering into a commercial lease!

A common question that entrepreneurs/inventors have when incorporating is how to structure the business. The options for structuring a business can be overwhelming, especially when it comes to determining the number of share classes to include in your corporation. Generally, founders will initially want to issue shares to themselves, their investors, and certain employees.

When trying to separate from a co-founder or partner, shareholders carefully review the “shotgun” clause in their shareholder’s agreement. Shotgun or a compulsory buy/sell provisions are used in the “it’s you or me” situation when one or more of the shareholders decide that they can no longer proceed with the other(s).

Landing a huge contract is exciting – and risky! The stakes are high when a large proportion of your business’ resources are dedicated to an important project – especially if the contract is terminated prematurely by the customer.

As drafters of commercial agreements, we understand how important it is to our clients to limit or exclude their liability as much as possible, whether they are the customer or the service provider. At the same time, we know you need to be paid for your services.

A startup, like any new business, is inherently risky, and you’ll want the venture to be as financially and legally secure as possible. But more than that, it’s kind of your baby. It’s something that you have created, and obviously you don’t want someone taking that away from you.

When you sign a contract, one of the most worrisome questions is “What if I simply can’t deliver? What happens if I physically cannot perform my contractual obligations through no fault of my own?”

Although they apply in only the most strictly interpreted, limited situations, the doctrine of frustration and force majeure clauses can come to the rescue. The first relies primarily on the courts, while the second relies on careful contract drafting.

But what exactly are the doctrine of frustration and force majeure clauses?

Trust is a big part of any deal, and a situation where you’ve been hired and promised shares but never received any is a major breach of that trust. But does that trust translate into something legally binding, that when broken, gives you options for legal action?

The app world now is booming. Everyone is looking to offer that next top-selling app, but it’s not as easy as it looks. First, you have to come up with an idea that is innovative and hopefully not already taken. Once you have that idea in mind, the next hurdle is bringing that idea to fruition while avoiding theft of your hard work. Here are some tips on how you can protect yourself.

Serial entrepreneurs are constantly coming up with the ‘next big idea’. During the excitement of starting the process of building a business, incorporating might not be the first thing on an entrepreneur’s mind. Employees might be promised shares in a corporation that doesn’t even exist. Can the employees enforce this promise?

During World War II there was an expression designed to keep people from sharing seemingly unimportant information with others, especially in public places: “Loose lips sink ships.” Today that public space is the internet, and the “loose lips” of employees can quickly tarnish a company’s reputation or divulge confidential information. The key is to make it very clear that the company has specific expectations about how employees will (or will not) communicate online about the company.

A while ago Forbes published an article titled, “10 Big Legal Mistakes Made By Startups.” It’s quite informative about what you need to do to start a business, but also quite long. We took the liberty of reading it for you and boiling it down to a few of its most important points, and they all come down to one thing: making sure you have the right contracts in place.